The project is vital to the coal ambitions of GVK - a conglomerate with interests in airports, hotels and transportation, besides energy - and could help meet voracious appetite for coal in India, where two-thirds of power production is dependent on the mineral.

GVK's Alpha project is the front-runner among several projects in the untapped Galilee Basin in Queensland, where rival Indian group Adani Enterprises is planning an A$10.9 billion coal and rail project.

The Alpha project is being run by Hancock Coal, 79 percent owned by GVK and 21 percent owned by Asia's richest woman, Gina Rinehart, who sparked a political storm last week when she won the right to hire foreign workers to build an iron ore mine.

The Queensland coal project still needs environmental approval from the federal government in Canberra and a mining lease from the state to go ahead.

The state's green light was a big step following the election of a conservative government last month which is looking to clear a backlog of resources projects worth at least $51 billion and awaiting approvals.

"The new government is an absolute breath of fresh air. It is very approachable, and they have shown a real interest in coordinating development in Queensland," said Jay Leary, an energy and resources partner at law firm Freehills.

GVK shares were up 5 percent on Tuesday in Mumbai trading, handily outpacing the 0.5 percent rise of the broader market.

The Galilee Basin projects have been slow to win clearance, facing opposition from environmentalists concerned about coal burning, port dredging and ship traffic along the fragile Great Barrier Reef, as well as from landowners along the proposed rail route.

"We don't think GVK knew what they were getting into when they bought a majority stake in this mine," Greenpeace senior campaigner John Hepburn said in a statement, vowing to continue fighting against the mine.

GVK, named after the conglomerate's founder and chairman Gunapati Venkata Krishna Reddy, bought the Alpha project stake and the neighboring Kevin's Corner project from Rinehart last September for A$1.26 billion.

That was just three months after Rinehart flew a delegation of Australian politicians to Hyderabad in south India, joining about 7,000 guests, including Bollywood stars, for Reddy's granddaughter's wedding.

"I must admit it was absolutely mind-blowing," Australian Nationals Party leader Barnaby Joyce was quoted in the Australian media as saying after the three-day extravaganza.

TOUGHER APPROACH

Approval for Alpha from the Labor government in Canberra, though, is not a given. A previous proposal by a rival Galilee Basin project, now owned by another Australian mining magnate, Clive Palmer, to build a rail line and port at a different location was rejected by the federal government in 2008.

Canberra recently flagged a tougher approach on environmental approvals for areas near the Great Barrier Reef, working to set tighter conditions on Rio Tinto to win the go-ahead for a bauxite expansion in north Queensland.

Nevertheless, Reddy said in a statement the state approval "paves the way for us to complete financing and secure final mining approvals for the Alpha project in the second half of 2012."

The approval from Queensland's coordinator-general sets out 128 conditions for managing the environmental impact from building the 30 million tonnes-a-year thermal coal mine and a 495 km (310 mile) rail line from the mine to the port of Abbot Point.

The mine and rail project is estimated to cost $6.3 billion and the related port project $3.6 billion.

Hancock Coal is looking to sell down its stakes in the Alpha coal project and related port and rail assets to help fund the cost of the project, with interest seen from Asian coal buyers, Chief Executive Paul Mulder told Reuters in March.

Citi is advising on the sale of the mine stake, while Macquarie Capital is advising on the port and rail stakes.

"There'll be an estimated A$11 billion boost to the economy during the mine's three-year construction phase," Queensland deputy premier Jeff Seeney said in a statement.

GVK expects to start construction, which will involve more than 4,000 workers at its peak, in 2013 and aims to start producing coal in 2015. ($1 = 1.0156 Australian dollars)